Half Yearly Report

RNS Number : 6725G

JPMorgan European Smaller Co.

23 November 2015

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

30TH SEPTEMBER 2015

Chairman's Statement

Performance

In the first six months of the Company's financial year to 30th September 2015, European smaller companies fared better than their large cap counterparts. However, the market fell and the total return from the benchmark index, the Euromoney Smaller European Companies (ex UK) Index, was -3.8%. I am pleased to report that our Investment Managers not only outperformed the benchmark, but they also produced a positive total return on net assets of +2.4% for the six month period. This was due principally to good stock selection. In their report which follows the Investment Managers provide information on the factors impacting the market and the Company's portfolio in the first six months of the financial year.

The share price return was also positive at +0.7%, however the discount at which the Company's shares trade widened from 13.0% at the end of the last financial year to 14.4% at 30th September.

The Company's medium and long term performance record also remains very strong, having out-performed the benchmark index over one, three, five and ten years. Indeed, the total return on net assets over the ten years ended 30th September 2015 is +152.0% against the benchmark total return of +93.4%.

Revenue and Dividend

As I have explained in previous Chairman's Statements, the Board's dividend policy is to pay out the vast majority of revenue available each year. I would again remind shareholders that the Company's objective is to achieve capital growth and management of the portfolio is not constrained to deliver income in any one period. Gross revenue return for the six months to 30th September 2015 was slightly lower than the corresponding period in 2014 at £7.4 million (2014: £7.6 million).

The Board has decided to pay an interim dividend of 1.2 pence per share (2014: 1.2 pence), which will be paid on 15th January 2016 to shareholders on the register as at 18th December 2015 (the ex-dividend date will be 17th December 2015).

Management Fee

As previously reported, the Company's management fee was re-negotiated with JPMorgan and with effect from 1st April 2015 a reduced fee of 1.0% of net assets has been charged.

Share Repurchases

The Board continues to monitor the level of the discount carefully and seeks to use its ability to repurchase shares for cancellation to minimise unexpected fluctuations in the level of the discount. No shares were repurchased for cancellation during the six months to 30th September 2015.

Outlook

European economies continue their recovery, but the recent slowdown in the rate of growth in the Chinese economy and its associated effect on exports from Europe into China has made the Investment Managers more cautious of the immediate market outlook. Accordingly, gearing has been reduced, cyclical investments reduced and the portfolio more focused on companies whose prospects are more dependent on their own prospects for growth rather than broader economic growth.

Carolan Dobson

Chairman                                                                                                                                    

23rd November 2015

Investment Managers' Report

Review

Optimism fuelled by low oil prices and interest rates, a weak Euro and monetary stimulus through quantitative easing by the European Central Bank evaporated quickly in August when data emerging from China suggested a sharp economic slowdown. Markets quickly discounted the potential negative repercussions on the Eurozone economy, and in particular Germany, of lower exports to China. The large company MSCI Europe (ex UK) Index declined by 10.2% in sterling terms in the six months to 30th September 2015. Surprisingly, the reaction of smaller companies was much more muted and the benchmark Euromoney Smaller European Companies (ex UK) Index fell by only 3.8%.

Portfolio

We are pleased to report that in the six month period the Company succeeded in reporting a substantially better result, with the NAV rising by 2.4%. This was achieved largely because of good stock selection and to a smaller extent sector allocation. Somewhat unusually and because of very volatile markets, we had a small negative impact on performance from gearing. In the six months we benefited from increased corporate activity. Faively, a French manufacturer of train components, was approached by a larger US competitor willing in principle to offer more than a fifty percent premium, while OVS, the largest Italian apparel retailer, continued to perform strongly following its initial public offering. Stroer, a German billboard advertising company, and Trigano, a French manufacturer of motor vehicle homes, both benefited from a strong pick up in European consumer demand. Poor performers in the period included the Italian cement producer Cementir, because of its exposure to Turkey, the Swiss private bank EFG International, due to poor cost control and Elis, the French textile cleaning provider, as it faced a price war in France.

With results of companies exposed to China deteriorating and increasing uncertainty about the state of the world economy, we have made some important changes to the portfolio. We have reduced gearing from 8.2% at the end of April to a small cash position at the end of September. Moreover we have pared back our cyclical exposure, reducing our big overweight position in auto components with the sale of companies such as Plastic Omnium in France and George Fischer in Switzerland. We have bolstered our positions in companies that should continue to grow regardless of the economic environment such as Temenos, the Swiss world leader in banking software, Ubisoft the European leader in videogame publishing and Unibet, the online gambling site operator. We have also added to companies that are exposed to the European consumer such as the French rental car company Europcar and Italian shoe manufacturer and retailer Geox.

Outlook

While there does indeed seem to be a slowdown in globally exposed industrial and consumer companies, the good news is that for now companies exposed to Europe and more especially the European consumer are doing well. Europeans are enjoying the benefits of low oil prices and interest rates at a time when the benefits of economic reform in peripheral Europe are increasingly evident in their economic renaissance. Consumer confidence indices in countries like Italy are the highest we have seen since 2001.

We have accelerated the process we started in September of focusing on high quality, well managed companies either exposed to the revival in European consumer confidence or companies that are generally less correlated with global economic trends. While the macro economic outlook may be uncertain we feel confident in the management teams and business models of the companies we are invested in.

Jim Campbell

Francesco Conte

Investment Managers                                                                                                                    

23rd November 2015

Interim Management Report

The Company is required to make the following disclosures in its half year report:

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational going concern and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st March 2015.

Related Party Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operation existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)  the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reports' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 30th September 2015, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii) the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•    select suitable accounting policies and then apply them consistently;

•    make judgements and accounting estimates that are reasonable and prudent;

•    state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Carolan Dobson

Chairman                                                                                                                                              

23rd November 2015

STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30th September 2015

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	30th September 2015			30th September 2014			31st March 2015
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through
profit or loss	-	7,428	7,428	-	(78,193)	(78,193)	-	(8,060)	(8,060)
Net foreign currency
(losses)/gains	-	(1,404)	(1,404)	-	3,200	3,200	-	7,229	7,229
Income from investments	7,347	-	7,347	7,478	-	7,478	8,448	-	8,448
Other interest receivable and
similar income	69	-	69	133	-	133	138	-	138
Gross return/(loss)	7,416	6,024	13,440	7,611	(74,993)	(67,382)	8,586	(831)	7,755
Management fee	(648)	(1,512)	(2,160)	(697)	(1,625)	(2,322)	(1,336)	(3,117)	(4,453)
Other administrative expenses	(336)	-	(336)	(306)	-	(306)	(694)	-	(694)
Net return/(loss) on ordinary
activities before finance
costs and taxation	6,432	4,512	10,944	6,608	(76,618)	(70,010)	6,556	(3,948)	2,608
Finance costs	(122)	(284)	(406)	(175)	(408)	(583)	(290)	(676)	(966)
Net return/(loss) on ordinary
activities before taxation	6,310	4,228	10,538	6,433	(77,026)	(70,593)	6,266	(4,624)	1,642
Taxation	(354)	-	(354)	(751)	-	(751)	(747)	-	(747)
Net return/(loss) on ordinary
activities after taxation	5,956	4,228	10,184	5,682	(77,026)	(71,344)	5,519	(4,624)	895
Return/(loss) per share
(note 4)	3.72p	2.64p	6.36p	3.55p	(48.10)p	(44.55)p	3.45p	(2.89)p	0.56p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by The Association of Investment Companies.

STATEMENT OF CHANGES IN EQUITY

for the six months ended 30th September 2015 (unaudited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2015 (Unaudited)	8,008	1,312	7,628	406,499	6,280	429,727
Net return on ordinary activities	-	-	-	4,228	5,956	10,184
Dividends appropriated in the period	-	-	-	-	(3,203)	(3,203)
At 30th September 2015	8,008	1,312	7,628	410,727	9,033	436,708
At 31st March 2014 (Unaudited)	8,008	1,312	7,628	411,139	5,406	433,493
Expenses incurred due to stock split	-	-	-	(16)	-	(16)
Net (loss)/return on ordinary activities	-	-	-	(77,026)	5,682	(71,344)
Dividends appropriated in the period	-	-	-	-	(2,723)	(2,723)
At 30th September 2014	8,008	1,312	7,628	334,097	8,365	359,410
At 31st March 2014 (Audited)	8,008	1,312	7,628	411,139	5,406	433,493
Expenses incurred due to stock split	-	-	-	(16)	-	(16)
Net (loss)/return on ordinary activities	-	-	-	(4,624)	5,519	895
Dividends appropriated in the year	-	-	-	-	(4,645)	(4,645)
At 31st March 2015	8,008	1,312	7,628	406,499	6,280	429,727

¹     This reserve forms the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION

at 30th September 2015

	(Unaudited)	(Unaudited)	(Audited)
	30th September 2015	30th September 2014	31st March 2015
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit
or loss	438,479	350,686	465,221
Cash equivalents (including liquidity funds) at
fair value through profit or loss1	41,486	31,356	9,992
	479,965	382,042	475,213
Current assets
Debtors	6,662	9,095	6,322
Cash and short term deposits	16,081	8,792	1,300
	22,743	17,887	7,622
Creditors: amounts falling due within one year	(10,728)	(1,540)	(9,699)
Derivative financial instruments: forward foreign
currency contracts	(3)	(18)	-
Net current assets/(liabilities)	12,012	16,329	(2,077)
Total assets less current liabilities	491,977	398,371	473,136
Creditors: amounts falling due after more than
one year	(55,269)	(38,961)	(43,409)
Net assets	436,708	359,410	429,727
Capital and reserves
Called up share capital	8,008	8,008	8,008
Share premium	1,312	1,312	1,312
Capital redemption reserve	7,628	7,628	7,628
Capital reserves	410,727	334,097	406,499
Revenue reserve	9,033	8,365	6,280
Equity shareholders' funds	436,708	359,410	429,727
Net asset value per share (note 5)	272.7p	224.4p	268.3p

¹     This line item was shown as 'Investment in liquidity fund held at fair value through profit or loss' in the financial statements for the year ended 31st March 2015.

Company registration number: 2431143

STATEMENT OF CASH FLOWS

for the six months ended 30th September 2015

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2015	30th September 2014	31st March 2015
	£'000	£'000	£'000
Cash inflow from operations (note 6)	3,512	3,798	2,084
Interest paid	(402)	(580)	(974)
Taxation	117	223	518
Net cash inflow from operating activities	3,227	3,441	1,628
Purchases of investments and derivatives	(478,324)	(462,606)	(883,929)
Sales of investments and derivatives	513,947	515,603	904,941
Other capital charges	(49)	(128)	(207)
Net cash inflow from investing activities	35,574	52,869	20,805
Dividends paid	(3,203)	(2,723)	(4,645)
Net drawn down/(repayment) of bank loans	10,341	(27,820)	(20,585)
Expenses incurred due to stock split	-	(16)	(16)
Net cash inflow/(outflow) from financing activities	7,138	(30,559)	(25,246)
Increase/(decrease) in cash and cash equivalents	45,939	25,751	(2,813)
Cash and cash equivalents at start of year	11,292	15,437	15,437
Exchange movements	336	(1,040)	(1,332)
Cash and cash equivalents at end of year	57,567	40,148	11,292
Increase/(decrease) in cash and cash equivalents	45,939	25,751	(2,813)
Cash and cash equivalents consist of:
Cash and short term deposits	16,081	8,792	1,300
Cash equivalents (including liquidity funds) at
fair value through profit or loss	41,486	31,356	9,992
	57,567	40,148	11,292

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30th September 2015

1.    Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 31st March 2015 are extracted from the latest published financial statements of the Company and do not constitute statutory financial statements for that year. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

2.   Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the revised 'SORP') issued by the Association of Investment Companies in November 2014.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 30th September 2015.

As a result of the first time adoption of FRS 102 and the revised SORP, comparative numbers and presentational formats have been restated where required.

All of the Company's operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st March 2015 with the following exceptions and amendments:

Finance costs

Finance costs are accounted for on an accruals basis using the effective interest method and in accordance with the provisions of FRS 102.

Financial instruments

Cash and cash equivalents may comprise cash (including demand deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents.

Derivative financial instruments, including short term forward currency contracts, are valued at fair value, which is the net unrealised gain or loss, and are included in current assets or current liabilities in the statement of financial position in accordance with FRS 102.

Foreign currency

In accordance with FRS 102 the Company is required to identify its functional currency, being the currency of the primary economic environment in which the Company operates. The Board, having regard to the currency of the Company's share capital and the predominant currency in which its shareholders operate, has determined that sterling is the functional currency. Sterling is also the currency in which the accounts are presented.

Taxation

Current tax is provided at the amounts expected to be received or paid.

Repurchase of ordinary shares for cancellation

The cost of repurchasing ordinary shares including the related stamp duty and transactions costs is charged to 'Capital reserves' and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. The nominal value of ordinary share capital repurchased and cancelled is transferred out of 'Called up share capital' and into 'Capital redemption reserve'.

Dividends payable

In accordance with FRS 102 the final dividend is included in the financial statements in the year in which it is approved by shareholders.

Only the relevant section of the applicable policies from the last year end accounts which have changed as a result of the application of the 2014 AIC SORP and FRS 102 have been reproduced above - all other aspects of those policies remain the same. The impact of the changes is substantially in relation to presentational, disclosure and non-quantifiable aspects.

3.   Dividends¹

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2015	30th September 2014	31st March 2015
	£'000	£'000	£'000
Final dividend in respect of the year ended
31st March 2015 of 2.0p (2014: 1.7p)	3,203	2,723	2,723
Interim dividend in respect of the year ended
31st March 2015 of 1.2p	-	-	1,922
Total dividends paid in the period/year	3,203	2,723	4,645

¹     All dividends paid and declared in the period have been funded from the Revenue Reserve.

An interim dividend of 1.2p (2014: 1.2p) has been declared in respect of the six months ended 30th September 2015, amounting to £1,922,000.

4.   Return/(loss) per share	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2015	30th September 2014	31st March 2015
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	5,956	5,682	5,519
Capital return/(loss)	4,228	(77,026)	(4,624)
Total return/(loss)	10,184	(71,344)	895
Weighted average number of shares in issue	160,147,885	160,147,885	160,147,885
Revenue return per share	3.72p	3.55p	3.45p
Capital return/(loss) per share	2.64p	(48.10)p	(2.89)p
Total return/(loss) per share	6.36p	(44.55)p	0.56p

5.   Net asset value per share

The net asset value per share is calculated by dividing shareholders' funds of £436,708,000 (30th September 2014: £359,410,000 and 31st March 2015: £429,727,000) by the number of shares in issue at 30th September 2015 of 160,147,885 (30th September 2014: 160,147,885 and 31st March 2015: 160,147,885).

6.   Reconciliation of total return/(loss) on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2015	30th September 2014	31st March 2015
	£'000	£'000	£'000
Net return/(loss) on ordinary activities before
finance costs and taxation	10,944	(70,010)	2,608
(Net capital return)/net capital loss on ordinary
activities before finance costs and taxation	(4,512)	76,618	3,948
Scrip dividends received as income	(888)	-	-
Decrease/(increase) in accrued income	94	(56)	(138)
Decrease/(increase) in other debtors	13	10	(2)
Decrease in accrued expenses	(22)	(36)	(11)
Overseas withholding tax	(605)	(1,103)	(1,204)
Management fee charged to capital	(1,512)	(1,625)	(3,117)
Net cash inflow from operating activities	3,512	3,798	2,084

7.   Fair valuation of investments

The fair value hierarchy analysis for investments held at fair value at the period end is as follows:

	(Unaudited)		(Unaudited)		(Audited)
	Six months ended		Six months ended		Year ended
	30th September 2015		30th September 2014		31st March 2015
	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Quoted prices for identical instruments
in active markets	438,479	-	350,686	-	465,221	-
Prices of recent transactions for
identical instruments1	41,486	-	31,356	-	9,992	-
Valuation techniques using
observable market value2	-	(3)	-	(18)	-	-
Total value of investments	479,965	(3)	382,042	(18)	475,213	-

¹     Includes JPMorgan Euro Liquidity Fund.

²     Includes forward foreign currency contracts.

For further information, please contact:

Jonathan Latter

For and on behalf of

JPMorgan Funds Limited, Secretary 020 7742 4000

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN FUNDS LIMITED

ENDS

A copy of the half yearly report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The half yearly report will also be available on the Company's website at www.jpmeuropeansmallercompanies.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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